Friday, July 20, 2007

MIKHAIL Khodorkovsky, once Russia's richest man, is now one of Russia's best-known political prisoners. Having committed the unpardonable sin of considering a political challenge to President Vladimir Putin, Mr. Khodorkovsky has languished in a Siberian prison camp since 2005, and Russian authorities want to keep him there. With a diminished but nevertheless sizable fortune, not to mention moral capital because of his refusal to bend to Kremlin pressure, the former oil baron might still hope to have some influence after his release, particularly if he is freed before the uncertain 2008 presidential contest. That is one likely reason that he and a business associate face additional charges -- just months before they would be eligible for parole. If convicted, he would have to wait out the next presidential election and a lot more.The charges are magnificently implausible. Mr. Khodorkovsky is alleged to have embezzled and then laundered $32 billion through affiliates of his oil company, Yukos. Inconveniently for the government, PricewaterhouseCoopers was vouching for Yukos's books throughout the period in question.More convenient for the Kremlin, the auditor last month suddenly disowned and withdrew a decade's worth of Yukos audits, helping to neuter Mr. Khodorkovsky's defense. Before the announcement, the firm had insisted that its work was sound. After the announcement -- surprise, surprise -- a Moscow court ordered new hearings on a $9 million tax case against PricewaterhouseCoopers that, until then, had not been going the company's way.A spokesman for PricewaterhouseCoopers insisted that its decision to withdraw the audits had nothing to do with the months of harassment it received from Russian authorities -- including a police raid, the tax lawsuit and threats that its license to operate in Russia could be revoked. At the same time, the company declined to publicly detail its reasons for withdrawing the audits.It's just one more tawdry example of the difference between rule by law and rule by Mr. Putin.

That Vladimir Putin is corrupt and evil should not come as a surprise to anyone around here. He is after all a former officer of the KGB. What should be at least somewhat shocking is the corruption of PricewaterhouseCoopers.

Anyone out there who might ever be thinking of hiring an accounting firm needs to keep in mind that this one can be intimidated or bribed into selling out their clients. Even to the point of perjuring themselves in a court proceeding.

Just as Arthur Andersen went down because of its role in the Enron blowup I think Pricewaterhouse just doomed itself. As a rule corporations which do not enjoy the trust of their clients simply do not survive this is especially true for an accounting firm.